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Looks like there is no reason for them to exist because of the large negative net worth of the low interest rate loans. They could only survive if their other a

• fnordpiglet 3y ago
  The loans don’t have a negative net worth. That would imply they need to pay loan holders. The loans are worth less than they were before, so they are net negative profit. But they have a positive worth as they will likely be paid back in full. The challenge they have is they face a liquidity problem unrelated to the loan value. Since they’re leveraged into their loans if someone tries to withdraw money they don’t have they can’t raise it by selling the loans. Granted, they are also potentially underwater from the loan value decreases, but I’ve not seen anything that indicates that. Mostly I think no one sees a reason to park their assets at a regional bank right now- although a lot of smaller banks are offering extremely high returns on deposits to simply keep depositors from leaving, even if their loan and asset portfolio can’t support it indefinitely.
  • toomuchtodo 3y ago
    It seems like this is all duration risk coming home to roost. Some banks (svb) made poor risk management decisions (going long too long) while having flighty deposits, while the Fed should’ve talked to FDIC when they were preparing to rocket the benchmark rate to step in sooner (to backstop them) when the value of these assets were going to quickly deteriorate due to the speed at which the Fed was going to move. Admittedly, it’s easy to Monday Morning quarterback, hindsight is 20/20, all that.